Monday, 29 November, 2010

Making Financial Inclusion Real

Making Financial Inclusion Real

The FM and different bigwigs of the financial services industry have been singing hosannas about Financial Inclusion.

But what is the action on the ground indicating?

  • A vast majority of banks (especially private sector banks, including those whose Chairmen keep giving lectures on Financial Inclusion) do not see the bottom of the pyramid as an opportunity - At best they view it as a necessary evil.
  • The government talks financial inclusion, but says "I'll deduct loads of TDS from your bank account if you don't have a PAN Card". Since when do the people who actually need financial inclusion even became aware of such a creature called a "PAN Card"? If I'm a poor landless farmer from interior Orissa, the last thing I would be looking forward is to get a PAN Card. Imagine the kind of apprehensions that I would have about the mysterious "Income Tax Officer" coming after me all of a sudden and asking all kinds of questions!!!
  • Microfinance institutions started off with noble intentions (supposedly following in the footsteps of the Grameen Bank of Bangladesh). Soon, the the real motive came out. Use the existence of a strategic gap between the "waive-all-bribery-driven-banks" and "fleece-the-last-drop-of-blood-moneylenders", freak out with huge interest rates, and still get a phenomenal return on capital employed for their shareholders. And, to top it off, try and come out with a public issue at a huge premium to boot!
  • "Farmer Subsidies" enriching the industrialist who is selling stuff like fertilizers, really rich rural landlords, etc. The truly poor remains truly poor.
  • Educational Loans, which are supposed to be available without any guarantees, security, etc. upto a certain limit, are hardly accessible to the genuinely poverty-stricken youth coming from an otherwise totally illiterate family.
  • Mutual Funds, especially equity mutual funds, could be a very useful tool to make the rural poor participate in the world-famous "India Growth Story". Just do a Google search to find out how much a simple SIP of Rs. 100/= per month over the last 5, 10, 20 years in any decent large-cap oriented mutual fund benchmarked to the Sensex. But, can the barely literate rural poor (or, for that matter, even urban poor ) invest in these? "Sorry", say the regulators. "We'd allowed that by mistake in the past, but now we've plugged that loophole by insisting on KYC norms for EVERY mutual fund investor, past, present and future"! The really big sharks have alternative mechanisms including the now notorious Hawala route to take their illegally gotten wealth overseas, only to bring it back to the country as and when needed (by the sharks, not the country) as "Foreign Investment".
  • Trade and commerce
    • The government will allow rats to eat foodgrains, but will refuse to build necessary infrastructure on a priority basis, which could enhance the holding power of the poor farmer. In today's scenario, the farmer is doomed if there is a drought or a flood. And he's doomed if there is a bountiful harvest. In case of scarcity, he has nothing to sell, and starves. In case of plenty, he finds it difficult even to recover the marginal cost. The middlemen, who have holding power, enrich themselves at every stage. The cost of shifting the agri-output is, directly or indirectly, borne by the farmer.
    • But when the farmer wants to buy his TV sets, chocolates, soaps, toothpaste, tractors, etc., he's told that "Market Economy" will apply, and he'll need to pay the right price to get what he wants. And the cost of reaching such goods to him at his village is obviously built into the price.
I'm a staunch capitalist by ideology. But if we need to apply principles of Capitalism and still flourish as a nation, we need to have equal opportunities for all. To begin with, the starting point in the race must be the same for all.

For this, the government needs to ensure:
  • Affordable, high quality education for all - till a certain age
  • Employability for all
  • Security of food for all
  • Reasonably good health care for all
  • High quality transport facilities across the length and breadth of the country
  • Transparency in procedures and processes.

Will we ever get such a government? Only then can we even dream of financial inclusion.



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